Gold struggling to maintain $1,600 mark

In the Lead: “Till Debt Do US Part”

What the GOP was busy passing last night (aside from a lot of hot-air laden rhetoric) was the so-called “Cut, Cap & Balance” measure; a Tea Party-flavor infused set of proposals that has about as much chance of getting ahead in the US Senate as Rupert Murdoch has at convincing people everywhere that he was simply “unaware” of the goings-on in his media empire and that he tends to forget things. A lot.

The “CC&B” measure is seen by Accounting Today’s Editor in Chief as one that would ensure of only one thing; that the US Constitution would be folded, spindled and mutilated promptly. Fear not however; at least the state of Utah has already (no surprise) thrown in its support for the proposals. Mr. Obama formally threatened to veto it, on the other hand.

The wrangling on all things deficit and budget-related continues in DC, however, China has (once again) “suggested” that the US do something to “strengthen international confidence and to respect and protect the interests of investors.” Roughly translated, the words mean: “Yo, American Dudes, y’all might wanna get your act together like…yesterday, so that Moody’s does not do what it has threatened to do, and we, here, start to buy y’all’s debt instruments once again because our reserves are still swelling with no place to go..” The Chinese State Administration of Foreign Exchange (SAFE, huh?) was not so subtle in its words of advice for Washington.

However, SAFE also let it be known (to the chagrin of many a hard money publication) that the swelling reserves will not likely be seeking purchases of precious metals or industrial commodities. Awww….say it is not true. SAFE reiterated the “difficulty” of investing billions into such assets as “using official reserves to acquire such assets would only push up their price.” What was not said by SAFE is that the opposite scenario – that of trying to sell some tonnage of such assets in a time of need – would cause untold price damage to those assets and hurt China’s balances remaining in the same.

The parallel is obvious: Gordon Brown’s ill-time disposal of a bunch of the UK’s gold did more damage to the remainder of its holdings (in value terms) than the proceeds of the sales yielded. That,folks, is the problem with small, relatively illiquid (when it comes to large amounts) markets. China knows it, but not, apparently, the aforementioned newsletter editors whose wishful thinking overrules their logic.

Logic did not enter into the game over at Goldman during the second quarter of this year. Despite the firm’s team of analysts correctly calling the massive drop in energy and other commodities, the firm got caught in the maelstrom of falling prices and promptly lost a bunch of money during the period. Outflows of money from commodities were quite hefty in the past trimester, despite what you might read in certain publications that would like you to throw your own money into the game in a larger amount than might be prudent.

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